Take Funds. Add March Madness. Do You Get Fun—or Foolishness?

By

Karen Damato

Updated Feb. 7, 2013 5:04 p.m. ET

Can mutual-fund investing be as much fun as betting on NCAA basketball? It's a long shot, but a trade publication for financial advisers is going for it with a Mutual Fund Madness tournament. Separate brackets for 64 stock and 64 bond funds are set to run concurrently with the college hoops tournament.

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The contest, sponsored by Financial Advisor magazine, offers a grand prize of two tickets to the 2014 Final Four for the player who earns the most points, based on predicting winning funds in the bracket matchups. As with the basketball teams, the funds are seeded by prior performance, and some upsets are likely along the way to the "Final Funds" in early April.

But the tournament—which boasts that "picking mutual funds has never been more fun!"—is eliciting a mix of cheers and boos. Some people say a game based on super-short-term results—six rounds of one-week matchups—isn't sending the right message to advisers and other investors.

Surprised Participants

Performance over very short periods "is total luck on the one hand and completely irrelevant on the other," says Tom Brakke, an investment consultant and writer in Excelsior, Minn. Too many fund buyers view investing as a series of "performance derbies," he says; they need to be prodded to delve more deeply into the people, philosophies and processes behind the results.

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Jason Schneider

The reactions from fund executives who had no idea their funds were going to be included range from anger to amusement. Wiliam Frels, chairman of Mairs & Power Inc., is ambivalent. Focusing on short-term results "is not our style," he says, but if the contest attracts assets to the young Mairs & Power Small Cap, "we are all for it."

At Financial Advisor magazine in Shrewsbury, N.J., founding publisher David R. Smith says the contest can be beneficial to both advisers and fund companies—some of which are paying $1,500 a fund to have their offerings in the brackets.

Sure, focusing on short-term results "totally flies in the face of what virtually 100% of fund companies are trying to do," he says. There is no intention to encourage that, he adds. Rather, Mr. Smith says the paying fund companies are looking to bring their smaller or less-known funds to advisers' attention, and "the competition is the reward for the advisers to take time to research the funds" on the lists.

The paying fund companies, augmented by others that sponsored Financial Advisor conferences in the past, weren't numerous enough to fill the brackets; more than half of the funds on the lists were grabbed from the top of the 2012 performance charts across various fund categories, Mr. Smith says.

Jensen Investment Management Inc. in Lake Oswego, Ore., was approached about paying to take part, says Richard Clark, director of sales and marketing. Given the short-term focus, "we had agreed it was probably not the right thing for us and politely passed," he says.

He was surprised to see Jensen Quality Growth, a fund with a top-notch 15-year record but a subpar 2012, in the stock-fund bracket—as a result of the firm having sponsored Financial Advisor conferences. "I'm not sure if it's good or bad, to be honest," Mr. Clark says.

Happy at No. 64

Meanwhile, Robert Auer of Auer Growth enthusiastically paid to play, and has no qualms about a distinction others might shy away from: His $63 million fund is the biggest underdog in the stock bracket, based on its 2012 return of just 2.3%.

Auer Growth's stock-picking strategy was a huge winner in other accounts over the 30 years beginning in 1987, he says, and now seems to be regaining momentum after doing "terribly" in fund form over the past few years. If it stays hot, he says, "we've got a good chance to win the whole thing."

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